In recent developments, the Central Bank of Iraq (CBI) has called for clarification regarding the Iraq Federal Supreme Court ruling. The courts ruling was to place the CBI under the control of the Council of Ministries and under the direct control of Prime Minister Maliki. This all began when Maliki asked the courts for guidance in November 2010, just before he was appointed the new Prime Minister. Now, the CBI is asking for clarification of the ruling and it is unknown whether the Iraq Federal Supreme Court will issue one or not.
The Development Fund of Iraq (DFI) is located in the Federal Reserve of New York (FRNY) which holds an estimated 50 billion dollars in the Iraq account. The CBI has stated and seems to believe that the DFI funds will be in danger when the CBI is placed under the control of the Council Ministries. This is not completely the case nor is it completely accurate.
The Iraq’s funds are now protected by the United Nations as per Chapter VII of the U.N.Charter. However, Iraq has emerged with limits from Chapter VII and this protection will only hold for six months. The creditors, whether they be private or government will eventually ask Iraq to pay back its debts. This will no doubt create a problem for the Iraqi government to service its debts. The debt servicing cost would ring up approximately 1.3 billion per month and could jump up to 5 billion in the future. Iraq may eventually find itself in a position where they are obligated to repay the countries debts resulting in a negative impact on the local economy. The result being a depletion of foreign currency reserves and oil revenues. The Iraqi government will continue with the DFI fund in New York. However, it will be under a different name thus allowing the Iraqi government to protect its growing 50 billion dollars.
The International Monetary Fund (IMF) recently asked the Ministry of Finance (MoF) to start privatizing state owned banks so that Iraq will be able to obtain IMF loans. The Iraqi government has responded saying it is still several years away. The IMF is reminding Iraq about the pledge Iraq made in 2007 in regards to removing subsidies given to industrial sectors.
The 2011 Iraq Federal Budget is approximately 78 trillion dinars. There is no set dinar exchange rate associated with the federal budget. The budget is calculated at the Oil price of $73 per barrel. The 2011 Budget will have some changes coming as the Kurds are upset about only getting 11% instead of the usual 17% due to calculations of the last years old prices. Expect more Budget delays in Parliament as there is backing to close the accounts of 2010. Meaning that, the state general budgets for the last 4 years were endorsed without having the closing of accounts of the previous years submitted to Parliament. Previously reported, the CBI was asked by the Ministry of Finance to remove all liquidity from all Ministry budgets monies that have not been spent in the fiscal year. Also, in December Prime Minister Maliki instructed the Ministry of Finance to submit a detailed report on the 2010 budget funds posted to ledger books. The report should highlight the names of the ministries that have not used up their funds.
During a recent private meeting, in which I attended, the Iraqi currency was addressed. The Dinar currency will be going through restructuring in terms of specifications and shapes. When this transpires, both the existing currency and the new currency will be in circulation at the same time. That’s right. One will not be taken out beforehand. Also discussed was the previously mentioned topic of the 100,000 dinar bank note. It appears that talks are still on the table in regards to this topic. The idea has not been flushed out.
In other news, The Iraq Central Bank has announced that seven foreign and regional banks are now operating in Iraq in compliance with the CBI’s financial controls. The CBI is also working very hard to activate banking licenses for the following banks; The British-Iraqi Bank, the Ceyhan Bank, a Turkish Bank, the Joint Bahrain Bank, the Iranian Qom Bank, the National Bank of Kuwait, and the Bank of China.
I have also just learned that the World Bank will be giving the Iraqi government a loan of an additional 250 million dollars. That announcement will be made very shortly. The last loan they were given was back in April 2010 and that was for 250 million.
Also, the Iraqi government is currently handing out 150 liters of heating oil for every citizen for the months of January, February, and March. The weather here has been unusually colder than normal as it also seems to be in many other parts of the world. In regards to the official inflation rate, it has risen to 3%.
To the many loyal readers and followers, I appreciate all the very kind emails that I have received over the past several weeks. My work here in Baghdad sometimes prevents me from dedicating the time that I’d like to in reporting to my loyal following. I’m hoping to get back on schedule to where I was posting more frequently. Thanks for remaining faithful!
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